First Bank Reports Fourth Quarter 2018 Net Income of $4.1 Million

Full Year 2018 Net Income of $17.6 Million Compared to $7.0 Million in 2017

For the Fourth Quarter and Full Year 2018: Continued Strong Organic Loan Growth; Stable and Favorable Asset Quality Metrics

HAMILTON, N.J., Jan. 24, 2019 (GLOBE NEWSWIRE) -- First Bank (Nasdaq Global Market: FRBA) today announced results for the fourth quarter and full year 2018.  Net income for fourth quarter 2018 was $4.1 million, or $0.22 per diluted share, compared to $583,000 or $0.03 per diluted share for the fourth quarter of 2017. Return on average assets and return on average equity for the fourth quarter of 2018 were 0.94% and 8.42%, respectively. Fourth quarter 2017 return on average assets and return on average equity were 0.16% and 1.40%, respectively. During the fourth quarter of 2017, First Bank recognized a one-time charge to income tax expense of approximately $2.6 million, or $0.15 per diluted share, as a result of the federal tax legislation that lowered corporate statutory income tax rates, requiring a revaluation of First Bank's deferred tax assets.

Net income for the fourth quarter 2018 and 2017 included certain merger-related items. First Bank's fourth quarter 2018 adjusted diluted earnings per share¹ were $0.21, adjusted return on average assets¹ was 0.90% and adjusted return on average equity¹ was 8.00%. Fourth quarter 2017 adjusted diluted earnings per share were $0.18, adjusted return on average assets was 0.89% and adjusted return on average equity was 7.84%.
   
Net income for 2018 was $17.6 million, or $0.95 per diluted share, compared to $7.0 million, or $0.48 per diluted share, for 2017. First Bank's 2018 return on average assets and return on average equity were 1.09% and 9.70%, respectively, compared to 0.57% and 5.60%, respectively, in 2017.  2018 adjusted diluted earnings per share were $0.95, adjusted return on average assets was 1.10% and adjusted return on average equity was 9.78%. 2017 adjusted diluted earnings per share was $0.72, adjusted return on average assets was 0.86% and adjusted return on average equity was 8.42%.

Fourth Quarter and Full Year 2018 Performance Highlights:

• A 17.7% increase in total net revenue (net interest income plus non-interest income) for the fourth quarter of 2018 to $15.1 million, compared to $12.9 million for the prior year quarter, and total net revenue for 2018 of $58.4 million an increase of  39.8%, or $16.6 million, compared to 2017.
• Total loans of $1.46 billion at December 31, 2018, an increase of $235.1 million, or 19.2%, from $1.23 billion on December 31, 2017, which included $178.0 million of organic loan growth.
• Total deposits of $1.4 billion at 2018 year end increased by $226.1 million, or 19.4%, from $1.2 billion at December 31, 2017, which included $117.9 million of organic deposit growth.
• Continued strong asset quality metrics with net loan charge-offs of $7,000 for fourth quarter 2018 compared to $287,000 for fourth quarter 2017. Nonperforming loans to total loans of 0.44% at December 31, 2018, compared with 0.52% at September 30, 2018 and 0.43% at December 31, 2017. 

"Driven by strong average interest-earning asset growth of $365.3 million in 2018, and the resulting increase in interest and dividend income, First Bank recorded another solid and productive performance for the fourth quarter and full year," said Patrick L. Ryan, President and Chief Executive Officer. "Our top-line revenue growth for the year continued at a double-digit pace and flowed through to strong earnings improvement reflective of both enhanced operating performance and a lower federal tax rate. Average loans grew $343.0 million, up 33.5% from 2017, from a combination of acquisition and strong organic origination activity. Average deposits were up $299.2 million at December 31, 2018, also reflecting acquisition activity, as well as actions taken targeted to attract new or enhanced deposit relationships."

"Our increased non-interest expense for 2018 reflects a full year of additional expenses associated with our acquisition of Bucks County Bank in September 2017, and our second quarter addition of Delanco Bancorp, as well as investments in people and technology to support our growing franchise. Examples of these investments include the addition of a Chief Deposit Officer and additional members of our retail and commercial deposit teams in the fourth quarter of 2018 to build on the progress we have made toward becoming a strong deposit gatherer. Despite the increase in non-interest expense for the year, we continued to benefit from operating leverage with total revenue growth of 43%, compared to the 35% increase in non-interest expense."

"Our fourth quarter net interest margin of 3.44% was down 7 basis points compared to fourth quarter 2017 and our 2018 net interest margin of 3.57% improved 18 basis points compared to the prior year. Margin compression continues to be a challenge that we intend to manage by focusing on opportunities for higher interest rates for interest-earning assets and by remaining disciplined in pricing deposits. Our asset quality metrics were highly favorable throughout 2018 including the fourth quarter, even while we continued to experience significant loan growth. After two reporting periods where we had net recoveries, our net charge-offs for the fourth quarter were de minimis at $7,000, and nonperforming loans to total loans finished the year at 0.44%, only 1 basis point higher than the ratio at 2017 year end."

"As the flattening yield curve has generated margin pressure we continue to vigorously explore expense management. In October we consolidated our Bensalem location into the nearby Trevose branch to improve the efficiency of our service footprint in Eastern Pennsylvania. We continue to evaluate the effectiveness of our branch system and in March 2019, we plan to further consolidate the former Bucks County Bank location in Levittown into our Trevose location."

"2018 was another productive and successful year for First Bank, and we believe that we're well positioned to continue this trend in 2019. We begin the new year with a solid loan pipeline, continued favorable asset quality metrics, and a strong capital position from which to fund continued loan growth."  

Income Statement

Our net interest income for fourth quarter 2018 was $14.2 million, an increase of $1.9 million, or 15.5%, compared to $12.3 million in the fourth quarter of 2017. This growth was driven by a $3.9 million, or 24.7%, increase in interest and dividend income. This increase was primarily a result of a $239.6 million increase in average loan balances, with growth in all of our loan types, along with an 18 basis point increase in the average interest rate on loans compared with the fourth quarter of 2017. Interest income growth was offset somewhat by increased interest expense of $2.0 million for the comparable quarter, which was primarily a result of higher average balances and interest rates paid for time deposits and money market deposits. Both loan and deposit balances reflect acquired and organic growth activity.

Net interest income of $54.9 million for 2018 increased by $15.3 million, or 38.5%, compared to $39.7 million for 2017. The increase in 2018 net interest income was also primarily driven by significant growth in average loans which increased by $343.0 million, along with a 30 basis point increase in the average interest rate on loans compared to the prior year, partially offset by higher interest expense on interest bearing deposits due to higher average balances and rates paid.

The fourth quarter 2018 tax equivalent net interest margin was 3.44%, a decrease of 7 basis points compared to 3.51% for the prior year quarter and a decrease of 16 basis points from the linked third quarter 2018. The decrease in the fourth quarter margin compared to 2017 was primarily the result of higher average balances and rates paid for interest-bearing liabilities, primarily money market and time deposits. Interest bearing liability costs increased 39 basis points for the comparable quarters. Partially offsetting higher interest bearing liability costs was the increase in the yield on interest-earning assets which increased 26 basis points, primarily driven by an increase of 18 basis points on the average yield on loans.  Our tax equivalent margin for the third quarter 2018 of 3.60% included the realization of $447,000 in interest income resulting from the payoff of a large nonaccrual commercial loan, which contributed approximately 11 basis points to the margin. Absent this item, our fourth quarter margin would have been 5 basis points lower compared to the third quarter due primarily to higher rates paid on money market and time deposits which contributed to a 13 basis point increase in the average cost of interest bearing liabilities.

The net interest margin for 2018 was 3.57%, an increase of 18 basis points compared to 3.39% for the prior year. The improvement in the full year net interest margin was driven by a $365.3 million increase in average interest-earning assets, primarily loans, along with a 36 basis point increase in the average rate for interest-earning assets compared to 2017. During 2018 the Federal Reserve increased the federal funds rate four times. First Bank's loan portfolio yield increased 30 basis points, primarily due to the repricing of floating rate loans. Partially offsetting higher earning asset yields were higher average interest bearing liability balances and rates paid due to a rising rate environment.   

The provision for loan losses for the fourth quarter 2018 totaled $1.0 million, an increase of $311,000 compared to $715,000 for the fourth quarter 2017 and an increase of $305,000 compared to the linked third quarter 2018. The full year 2018 provision for loan losses was $3.4 million compared to $2.7 million for the prior year period. The increase in the provision amount for the quarter and for the full year was a result of continued solid organic growth in our commercial loan portfolio, along with a specific reserve for a single nonperforming commercial loan. The increase was partially offset by continued low net charge-offs and strong asset quality metrics.

Fourth quarter 2018 non-interest income increased $380,000, to $984,000, from $604,000 in the fourth quarter of 2017. The increase was primarily a result of higher gains on recovery of acquired loans, gains on sale of loans and income from bank-owned life insurance. Non-interest income totaled $3.5 million for 2018, an increase of $1.3 million compared to $2.1 million for 2017. The increase was primarily a result of higher gains on recovery of acquired loans, higher other non-interest income, and income from bank-owned life insurance.

Non-interest expense for fourth quarter 2018 totaled $9.2 million, an increase of $1.9 million compared to $7.2 million for the prior year quarter and an increase of $976,000 compared to the third quarter of 2018. The higher non-interest expense compared to fourth quarter 2017 was primarily a result of increased salaries and employee benefits expense, higher occupancy and equipment costs and other expense. These higher expenses were partially offset by a reduction in merger-related expenses and other real estate owned expense, net. Non-interest expense in 2018 was higher, in part, due to the acquisition of Delanco in the second quarter of 2018, primarily reflected in higher salaries and occupancy and equipment costs. The increase in the fourth quarter compared to the linked third quarter was mainly the result of salary related expenses including the hiring of our Chief Deposit Officer and additional staffing for our retail and commercial deposit teams. We also incurred additional depreciation related costs associated with the upcoming closure of our Levittown branch in the first quarter of 2019. Non-interest expense for 2018 totaled $33.3 million, an increase of $8.6 million or 35%, compared to $24.7 million for 2017.   The 2018 increase in non-interest expense over 2017 was also primarily a result of increased salaries and employee benefits expense and higher occupancy and equipment expense, largely the result of our recent acquisitions, and other expense associated with a growing bank, partially offset by lower merger-related and other real estate owned expenses.

Our efficiency ratio² for the fourth quarter of 2018 was 61.8% compared to 54.8% in the fourth quarter of 2017. The efficiency ratio was relatively stable for the year despite the increase in the fourth quarter of 2018. The efficiency ratio was affected in the fourth quarter of 2018 by a modestly declining net interest margin, higher salary related expenses and the one-time depreciation increase related to the Levittown branch closure. Absent unusual items in the first quarter of 2019 we anticipate that our efficiency ratio will be more in line with our recent historical levels.

Pre-provision net revenue³ for the fourth quarter of 2018 was $5.7 million, a decrease of $91,000, compared to $5.8 million for the fourth quarter 2017. Similar to the efficiency ratio, pre-provision net revenue was also impacted by a lower net interest margin, higher salary related expense and the additional Levittown depreciation expense noted previously.  Similar to our efficiency ratio we anticipate that our pre-provision net revenue will improve in the first quarter of 2019.

Income tax expense for the fourth quarter of 2018 was $823,000, or an effective tax rate of 16.7% compared to $4.3 million or an effective tax rate of 88.1% in the fourth quarter of 2017 and $1.4 million or an effective tax rate of 20.2% in the linked third quarter 2018. As a result of the Tax Cuts and Jobs Act that was enacted on December 22, 2017, First Bank revalued its deferred tax assets to account for the future impact of a significantly lower corporate income tax rate. Based on this analysis, First Bank recorded a one-time charge of $2.6 million in the fourth quarter of 2017, primarily related to the revaluation of the deferred tax assets. Excluding the effects of this one-time charge the effective tax rate for fourth quarter 2017 would have been 33.7%. The effective tax rate for the full year 2018 and 2017 was 18.7% and 51.5%, respectively. The reduction in the effective tax rate for the full year and quarter ended December 2018 was primarily a result of the enactment of the Tax Cuts and Jobs Act in 2017, which reduced the federal statutory corporate income tax rate from 35% to 21%. The reduction in the fourth quarter effective tax rate compared to the linked third quarter is attributable to the tax benefit received related to additional options exercised in the fourth quarter of 2018 as well as lower than expected state income tax as a result of state tax strategies.

On July 1, 2018 New Jersey passed new tax legislation which imposes a surtax on corporations beginning on or after January 1, 2018. In addition, the new law reduced the dividends received deduction for certain dividend income retroactive to January 1, 2017. Another aspect of the law that could impact First Bank is the adoption of combined tax filings for corporations that are part of an affiliated group beginning in 2019. The surtax and the reduction in the dividends received deduction had a minimal impact to our 2018 income tax expense and effective tax rate. We are continuing to assess the potential impact of the change to the state tax regulations in 2019 with our advisors. We believe, at this time, our state tax planning strategies will continue to be beneficial in 2019 and our effective tax rate will be approximately 21% as we enter 2019. If certain state tax strategies are curtailed with the new regulations, we currently estimate that it will result in an effective tax rate of approximately 28% in 2019.

Balance Sheet

Total assets at December 31, 2018 were $1.71 billion, an increase of $258.8 million, or 17.8%, compared to $1.45 billion at December 31, 2017 due primarily to loan growth, both organic and acquired. Total loans were $1.46 billion at December 31, 2018, an increase of $235.1 million, or 19.2%, compared to $1.23 billion at the 2017 year end. Loan growth during 2018 was distributed across commercial and consumer loan segments and included both originated and acquired loans. The acquired Delanco loan portfolio contributed $57.1 million to the 2018 loan growth.  

Total deposits were $1.4 billion at December 31, 2018, an increase of $226.1 million, or 19.4%, compared to $1.2 billion at December 31, 2017. Non-interest bearing deposits totaled $219.0 million at December 31, 2018, an increase of $20.4 million, or 10.3%, from December 31, 2017. The Delanco acquisition added $108.2 million of deposits at the time of acquisition. 

Stockholders' equity increased to $194.8 million at December 31, 2018, up $31.6 million or 19.3% compared to $163.3 million at December 31, 2017. The increase was primarily the result of a $15.5 million increase in retained earnings, along with the Bank's issuance of additional common shares for the acquisition of Delanco, which increased capital by $14.4 million.

Asset Quality

First Bank's asset quality metrics were stable and favorable throughout 2018, reflective of our ongoing disciplined risk management and underwriting standards. Net charge-offs for the fourth quarter were $7,000, compared to $287,000 for fourth quarter 2017 and net recoveries of $103,000 for the linked third quarter of 2018. Net charge-offs as an annualized percentage of average loans were 0.00% in fourth quarter 2018, compared to 0.10% for fourth quarter 2017 and net recoveries of 0.03% for the linked third quarter 2018. Nonperforming loans as a percentage of total loans at December 31, 2018 were 0.44%, compared with 0.43% at December 31, 2017, and 0.52% at September 30, 2018. The allowance for loan losses to nonperforming loans was 237.9% at December 31, 2018, compared with 220.7% at December 31, 2017, and 192.2% at September 30, 2018.

As of December 31, 2018, the Bank exceeded all regulatory capital requirements to be considered well capitalized, with a Tier 1 Leverage ratio of 10.42%, a Tier 1 Risk-Based capital ratio of 10.86%, a Common Equity Tier 1 Capital ratio of 10.86%, and a Total Risk-Based capital ratio of 13.12%.

Cash Dividend Declared

On January 22, 2019 the Board of Directors declared a quarterly cash dividend of $0.03 per share to common stockholders of record at the close of business on February 8, 2019, payable on February 22, 2019. The Board of Directors believes that this dividend provides stockholders an added tangible benefit, and that it is appropriate given our current financial performance, momentum and near-term prospects.

Conference Call

First Bank will host an earnings call on Friday, January 25, 2019 at 9:00 a.m. Eastern time.  The direct dial toll free number for the call is 844-825-9784.  For those unable to participate in the call, a replay will be available by dialing 877-344-7529 (access code 10128154) from one hour after the end of the conference call until April 25, 2019.  Replay information will also be available on our website at www.firstbanknj.com under the "About Us" tab.  Click on "Investor Relations" to access the replay information for the conference call.

About First Bank

First Bank is a New Jersey state-chartered bank with 17 full-service branches in Cinnaminson, Cranbury, Denville, Delanco, Ewing, Flemington, Hamilton, Lawrence, Pennington, Randolph, Somerset and Williamstown, New Jersey, and Doylestown, Levittown, Trevose, Warminster and West Chester Pennsylvania. With $1.7 billion in assets as of December 31, 2018, First Bank offers a traditional range of deposit and loan products to individuals and businesses throughout the New York City to Philadelphia corridor. First Bank's common stock is listed on the Nasdaq Global Market exchange under the symbol "FRBA".

Forward Looking Statements
This press release contains certain forward-looking statements, either express or implied, within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements include information regarding First Bank's future financial performance, business and growth strategy, projected plans and objectives, and related transactions, integration of the acquired businesses, ability to recognize anticipated operational efficiencies, and other projections based on macroeconomic and industry trends, which are inherently unreliable due to the multiple factors that impact economic trends, and any such variations may be material.  Such forward-looking statements are based on various facts and derived utilizing important assumptions, current expectations, estimates and projections about First Bank, any of which may change over time and some of which may be beyond First Bank's control. Statements preceded by, followed by or that otherwise include the words "believes," "expects," "anticipates," "intends," "projects," "estimates," "plans" and similar expressions or future or conditional verbs such as "will," "should," "would," "may" and "could" are generally forward-looking in nature and not historical facts, although not all forward-looking statements include the foregoing. Further, certain factors that could affect our future results and cause actual results to differ materially from those expressed in the forward-looking statements include, but are not limited to: whether First Bank can: successfully implement its growth strategy, including identifying acquisition targets and consummating suitable acquisitions; continue to sustain its internal growth rate; provide competitive products and services that appeal to its customers and target markets; difficult market conditions and unfavorable economic trends in the United States generally, and particularly in the market areas in which First Bank operates and in which its loans are concentrated, including the effects of declines in housing markets; an increase in unemployment levels and slowdowns in economic growth; First Bank's level of nonperforming assets and the costs associated with resolving any problem loans including litigation and other costs; changes in market interest rates may increase funding costs and reduce earning asset yields thus reducing margin; the impact of changes in interest rates and the credit quality and strength of underlying collateral and the effect of such changes on the market value of First Bank's investment securities portfolio; the extensive federal and state regulation, supervision and examination governing almost every aspect of First Bank's operations including changes in regulations affecting financial institutions, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules and regulations being issued in accordance with this statute and potential expenses associated with complying with such regulations; First Bank's ability to comply with applicable capital and liquidity requirements, including First Bank's ability to generate liquidity internally or raise capital on favorable terms, including continued access to the debt and equity capital markets; possible changes in trade, monetary and fiscal policies, laws and regulations and other activities of governments, agencies, and similar organizations. For discussion of these and other risks that may cause actual results to differ from expectations, please refer to "Forward-Looking Statements" and "Risk Factors" in First Bank's Annual Report on Form 10-K and any updates to those risk factors set forth in First Bank's subsequent Quarterly Reports on Form 10-Q or Current Reports on Form 8-K. If one or more events related to these or other risks or uncertainties materialize, or if First Bank's underlying assumptions prove to be incorrect, actual results may differ materially from what First Bank anticipates. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and First Bank does not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. All forward-looking statements, expressed or implied, included in this communication are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that First Bank or persons acting on First Bank's behalf may issue.

¹ Adjusted diluted earnings per share, adjusted return on average assets and adjusted return on average equity are non-U.S. GAAP financial measures and are calculated by dividing net income adjusted for certain merger-related expenses and income and other one-time expenses by diluted weighted average shares, average assets and average equity, respectively.  For a reconciliation of these non-U.S. GAAP financial measures, along with the other non-U.S. GAAP financial measures in this press release, to their comparable U.S. GAAP measures, see the financial reconciliations at the end of this press release. 

² The efficiency ratio is a non-U.S. GAAP financial measure and is calculated by dividing non-interest expense less merger-related expenses by adjusted total revenue (net interest income plus non-interest income adjusted for gains on sale of investment securities and gain on recovery of acquired assets).  For a reconciliation of this non-U.S. GAAP financial measure, along with the other non-U.S. GAAP financial measures in this press release, to their comparable U.S. GAAP measures, see the financial reconciliations at the end of this press release.

³ Pre-provision net revenue is a non-U.S. GAAP financial measure and is calculated by adding net interest income and non-interest income and subtracting non-interest expense adjusted by certain non-recurring items.  For a reconciliation of this non-U.S. GAAP financial measure, along with the other non-U.S. GAAP financial measures in this press release, to their comparable U.S. GAAP measures, see the financial reconciliations at the end of this press release.

CONTACT:  Patrick L. Ryan, President and CEO
(609) 643-0168, patrick.ryan@firstbanknj.com